In part two of our series on informal agreements made in family law cases, we look at how the Court treats a “Heads of Agreement.” This type of agreement is often made by two separating parties to resolve a financial matter, typically where it concerns the sale or division of a property, and in the presence of a mediator and/or their family lawyers.

What is a Heads of Agreement?

In family law terms, a Heads of Agreement is often made during negotiations between two parties and/or their legal representatives to resolve urgent financial issues – namely where property is concerned. It is often made during a mediation in an effort to bring some finality to the issues at hand.

However, much like “handshake agreements” as documented in our previous article here, a Heads of Agreement is often not held up by the Courts as they are not legally enforceable.

To demonstrate how the court treats the operation of such an agreement and the general principles that apply, we refer to the case of Farnham and Farnham.

The case of Farnham & Farnham [2022]

In this case [1], both parties (a former Husband and Wife) submitted competing property applications whereby they both wished to retain the former family home.

The wife sought the Court to make orders stemming from a “Heads of Agreement” that had been signed by both parties but had since been reneged on by the Husband, which had included an agreement to sell the home at a set time for a specific price.

However, the Court found that such an agreement (even if previously signed by both parties) was deemed “vulnerable”, unless it was “formalised by a Court Order.”

Much like in the case of a “handshake agreement,” the Court maintained that the parties, “…cannot by their conduct or agreement oust the jurisdiction of the Court”.

In making its decision in this case, the Court found that the Husband had acted to the detriment of the Heads of Agreement as both parties had previously agreed to sell the property during a certain period of time at an agree price to which the Husband later went back on. During this time, the property market took a dive and the offers made on the property dropped in price over time. The Wife then wanted to hold on to the property and do some renovations in order to get the price they had both agreed on. However, the Husband attempted to sell the property at a much lower market value than what was agreed upon.

The Court found that it was the Husband’s deliberate conduct that produced a loss for the parties and that he had undermined the potential sale of the property. This also rendered the “Heads of Agreement” they had made, void, as the Husband was found to be in breach of the agreement.

Equitable estoppel

While outside the scope of this article, Lawyers often talk about principles like ‘equitable estoppel’, to try to stop someone from reneging on such an agreement where they may have acted to the detriment of themselves or the other party. Only in the rarest of cases would that principle have application in family law cases involving informal handshake or Heads of Agreements.

What does this case tell us about these types of agreements?

While a handshake agreement and/or a Heads of Agreement is an important step towards coming to an agreement on property and/or parenting matters following a separation, unfortunately they will not always be upheld by the Courts. The only way in which such an agreement will be legally binding on the Court is either by a Binding Financial Agreement or via Consent Orders.   

Need assistance in understanding handshake agreements or heads of agreements?

Due to the conditional nature of an informal agreement made in family law cases (either a handshake agreement or a heads of agreement) and the fact that they are very rarely held up as enforceable by the Courts, it’s always recommended to seek legal advice from an experienced family lawyer if you wish to formalise your property and/or parenting matters. Contact our Sydney family lawyers today on 02 9262 4003 for a confidential discussion or submit an online enquiry.

REFERENCES
[1] FedCFamC2F 83
The content of this article is intended as a general guide to the subject matter. For specific legal advice about your individual circumstances, please contact our experienced lawyers.